CONVERTIBLE DEBENTURES

12 Months Ended

Dec. 31, 2024

Note 4 – Convertible Debentures

CONVERTIBLE DEBENTURES

Convertible debentures transactions for the years ended December 31, are summarized as follows:

SCHEDULE OF CONVERTIBLE DEBENTURES

Principal	2024			2023
Balance, beginning of period	$	341,000		$	4,613,000
Additions		1,410,000			-
Conversions		(341,000	)		(4,272,000	)
Balance, end of period		1,410,000			341,000

Debt issuance cost
Balance, beginning of period		-			-
Additions		106,000			-
Amortization		(9,000	)		-
Balance, end of period		97,000			-

Net book value	$	1,313,000		$	341,000

In June 2024, the Company initiated a private place offering for its convertible promissory notes (the “Debentures”). As of December 31, 2024, the net proceeds were approximately $1,304,000, due to approximately $106,000 paid as debt issuance cost in connection with the issuance of the Debentures. The Debentures bears interest at 10.0% per annum with a default interest rate of 15.0% per annum. The principal amount and all accrued interest are payable on December 31, 2026. The holder of the Debentures has the option to convert the unpaid principal and interest into shares of the Company’s common stock at the conversion rate of $2.00 per share, subject to adjustment for stock splits, stock dividends and the like and for issuances by the Company of common stock at a price per share that is less than the then-current conversion price, subject to certain exceptions.

In accordance with the Debenture, the Company has the right to prepay the Debentures upon providing 45 days of its intention to prepay.

The outstanding principal amount of the Debentures and all accrued interest thereon shall automatically be converted into shares of common stock at the then effective conversion price upon (i) the close of business on the sixtieth (60th) consecutive day on which the VWAP of the Company’s common stock is at least $4.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization with respect to the common stock, or (ii) the execution by the Company of a long-term lease with a data center client for all or a substantial portion of the Company’s planned data center development project.

In December 2023, the Company offered the holders of the Company’s outstanding convertible promissory notes in the aggregate principal amount of $341,000 the option to convert such notes into the Company’s common stock at a price ranging from $0.51 to $0.54 per share. During the three months ended March 31, 2024, the Company converted principal and interest of approximately $341,000 and $119,000, respectively (a total of $460,000), for 884,942 shares of the Company’s common stock with a fair market value of approximately $6,928,000 as of the dates of conversion. As the terms of the conversion were not in accordance with the original conversion feature, the holders of such notes did not provide any concession to the Company, and there was not an inducement to the holders to convert. As the offer did not have a time limit, the Company has accounted for the conversion in accordance with ASC 470-50-40-4. The difference between the fair value of the consideration paid of approximately $6,928,000 and the liability of $460,000 was approximately $6,468,000, which was accounted for as a loss on liability settlement. The loss on the settlement was recorded as a loss on extinguishment of debt on the statement of operations for the three months ended March 31, 2024.

Interest expense on these convertible promissory notes amounted to $32,000 and $439,000 for the years ended December 31, 2024 and 2023, respectively, of which $21,000 and $203,000, respectively, was capitalized as Data Center Campus Cost.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

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+ Details

CalEthos, Inc. 10-K